Santa Fe voters rejected another tax increase, this time in a low-turnout special election. The increase would have raised the gross receipts tax in Santa Fe County by one-sixteenth of one percent, or 6.25 percent on every $100 spent. The results were anything but close—70 percent of the voters opposed the increase. Unlike the sugary-drink tax election, which drew a lot of campaign spending and relatively high turnout, unofficial numbers from the Santa Fe County clerk showed just under 8,000 voters cast ballots for the gross receipts tax election, less than ten percent of the county’s registered voters. The state’s base gross receipts tax, which applies to most goods and services but not food or medicine, is 5.125 percent.
In a letter to New Mexico’s legislative leaders yesterday, State Auditor Tim Keller summarized the state’s largest tax breaks and their distribution by size. About half of the revenue that the state does not collect as a result of tax breaks comes from three sources: extractive industry tax breaks, two broad gross receipts tax breaks and the exemption of nonprofit organizations from gross receipts taxes. Tax exemptions for a range of extractive industries, such as mining and drilling, comprises 27 percent of all tax breaks and total nearly $400 million. Compiled by the Office of the State Auditor, the data came from the New Mexico Tax and Revenue Department. But finding it was not easy.
An effort to eliminate hundreds of tax breaks for dozens of businesses and service providers while lowering the overall tax rate on sales is moving forward in the Legislature and may become part of a solution to fix New Mexico’s budget deficit for years to come. The measure, sponsored by Rep. Jason Harper, R-Rio Rancho, passed the House of Representatives late Wednesday with no dissenting votes. The initiative had been broadly scaled back from what Harper first proposed with the introduction of House Bill 412, which now has a prime focus on reforming the state’s cumbersome gross receipts tax law. Initial measures to extend that tax to food, as well as changes to income tax rates and how property is valued, were removed from the bill in what House Speaker Brian Egolf called “the largest substitution in the history of the House floor.” Harper accepted the amendments from Rep. Carl Trujillo, D- Santa Fe, as the only realistic way his reforms would move forward.
Thursday marks the halfway point of the 2017 New Mexico Legislature’s 60-day run in Santa Fe. And while half the time is gone, perhaps 90 percent of the work remains. All-important debates over how to spend the public’s money, where to get it and how much to keep in reserve, are yet to be resolved. How much should be devoted to keeping the schools running? What kind of tax breaks are effective in stimulating a sputtering economy?
While state lawmakers are pulling out all the stops to find “now money” to plug an expected deficit in the next fiscal year, Rep. Jason Harper has introduced a bill he hopes can put the state on better financial footing for decades to come. Harper, R-Rio Rancho, admits that House Bill 412, the New Mexico Tax Reform Act, is not a quick fix and will not patch the budget in fiscal year 2018 or even 2019. But by restructuring the state gross receipts tax and simplifying income and other tax policies, New Mexico will position itself for more solid growth in the new economy, he said. “It doesn’t help us fix the current budget problem,” Harper said of his bill, “but this hopefully prevents another budget problem.” The measure comes halfway through the 2017 legislative session, when reserve funds have been depleted by efforts to balance budgets for the last fiscal year and the current year, which ends in June, and many lawmakers are focused on raising enough new money to get through the upcoming year.
Media coverage of planned tax legislation has so far focused on one hot-button topic of the proposal—reinstating a state tax on food. Santa Fe Archbishop John C. Wester and advocacy groups like New Mexico Voices for Children have vocally opposed the idea. But the two state representatives behind the proposal have not actually filed any legislation on the matter for the session that begins in January. Legislators could begin introducing bills on Dec. 15.
Crafting this year’s state budget will be a challenge and some long-held assumptions and principles will be tested. That was the message from Sen. John Arthur Smith, the famously fiscally conservative and pessimistic chair of the Senate Finance Committee, as he gave a short preview of the budget on Monday morning. The Deming Democrat spoke on the Senate floor, just two days after the House passed their version of the budget. His committee will now begin the review of the budget. “We’re real concerned about getting through the fiscal year we’re in,” Smith said.
A working paper that examined state tax codes and their effects on income inequality found that New Mexico, along many other states, has a tax system that tends to work against federal efforts to mitigate or reduce income inequality. The study comes from three staff economists with the Federal Reserve and looked at whether tax systems in each state helped the federal tax system to mitigate income inequality or if the state tax systems countered these efforts. The federal tax system tends to lessen inequality since it has a progressive tax system based largely on income taxes. States generally rely on sales taxes which are more regressive; New Mexico relies heavily on a Gross Receipts Tax. New Mexico’s GRT is known as a regressive tax that is a relic from the 1960s, when the state sought to tax activity from the federal government, which had a very large presence in the state but could not be directly taxed.